Q3 2023 Willdan Group Inc Earnings Call
Good day, ladies and gentlemen, and welcome to the Willden group third quarter 'twenty to 'twenty three financial results Conference call. Our hosts for todays call is al Cashcall, Vice President of Investor Relations. At this time, all participants are in a listen.
Only mode later, we will conduct a question and answer session I.
I would now like to turn the call over to your host Mr. Katz chalk the floor is yours.
Thank you Martin good afternoon, everyone and welcome to the World in groups third quarter 2023 earnings call joining our call today are Tom Brisbin, Chairman and Chief Executive Officer.
Jim Hurley, Chief financial officer and might be president.
The call today is on our earnings release, we issued after market closed today, you may find the earnings release and they will then Investor report.
Companies today's call in the press release and stock information section.
Our Investor Relations website management will review prepared remarks and we.
We will then open the call up to your questions statements made in the course of today's conference call, including answers to your questions.
Not purely historical are forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
The forward looking statements involve certain risks and uncertainties.
I want to note that such.
It is important to note the companys future results could differ materially from those in any such forward looking statements.
Factors that could cause actual results to differ materially and other risk factors are listed from time to time in the Companys SEC reports.
Including but not limited to the annual report on Form 10-K filed for the year ended December 32022.
The company cautions investors not to place undue reliance on the forward looking statements made during the course of this conference call.
<unk> disclaims any obligation and does not undertake.
Update or revise any forward looking statements made today.
In addition to GAAP results. We'll then also provide non-GAAP financial measures that we believe enhance investors' ability to analyze the business trends and performance.
Our non-GAAP measures include net revenue Jeff.
EBITDA and adjusted EPS.
Now I'll turn the call over to Tom Brisbin pulled as chair and CEO.
Thanks, Al and good afternoon, everyone.
That strategy is to reduce the amount of electricity and natural gas that people use.
And this clean energy transition to reduce carbon and focus on Hollywood Lexus affordable for people.
We worked with the largest most stable customers for example governments generally in industry.
No need to reduce their energy consumption.
And their customers.
Chile and governments are under extreme pressure to Macy's clean energy transition for them.
This is wearable damage primarily focus we are not in the generation of Green energy.
Does that require a bank finance.
Very few of our projects require a bank financing and are not impacted by interest rates.
Our projects are generally satisfied and are affordable for people paybacks are generally less than two years and save people money.
Well that strategy, starting with energy efficiency simply stated use less electricity and save money.
We have expanded greatly over the past 10 years.
And everyone. We are in a professional services company, helping customers solve problems with knowledge and software.
We strive for affordable solutions.
This word affordable cannot be stressed enough.
During this clean energy transition.
People, who cannot afford significantly higher energy costs.
Well that project helped.
To help people save money.
For example.
Our new construction contracts for utility.
Touch 10% of all.
All new commercial building construction in the United States.
All services and software are focused on saving energy again, the word for it.
Integral analytics software helps utilities modernize the grid.
The lease cost and highest.
We are agnostic to the generation source, whether it would be solar wind or batteries, and we help integrate them into the <unk>.
Local grid at the least cost.
For one of the largest health care groups in America.
1200 facilities in order to reach their decarbonization goals.
The affordable pace.
For a New York City, we completed this study for their 4000 buildings using a proprietary software is proprietary.
Prior try one building and message should be that first within their budget.
Policy to our clean energy transition strategy, there's been an affordable reduction of carbon.
Our strategy has always been to reduce the load on the grid and shift the demand.
Our current electrification projects that increase our laws are being coupled with demand response. This is where we can shift away from the time of day when electricity is expenses again.
Oh, Florida.
I want our investors employees and customers to recognize what role we play in this deep carbonization journey.
David Affordable clean energy.
It is a tough assignment.
We have 1600 really smart people, who are taking on this challenge.
This is Greg post call it <unk>.
The results of the last four quarters our evidence.
Last quarter, we had a record trailing.
A record trailing 12 months of EBITDA again in the third quarter of 2023, we delivered another trailing 12 month record.
For the third quarter, we continued our solid performance.
Focused execution across the organization drove double digit increases versus the prior year and nearly all of our key metrics.
The team is converting this organic revenue growth, 11% for the quarter and 17% for nine months.
Profit and cash flow.
Our strategy is working I would like to share some of the many opportunities we are capturing.
Our expanding backlog.
We are sharing these new projects to give our investors confidence.
Our strategy has the momentum to continue our growth through 2024 and beyond.
Despite the higher interest rates that are delaying in Germany, and large scale project.
On financing our affordable solution model is growing.
Some examples are.
Our engineering segments are winning new projects and geography, as well as integrating energy transition that cities are embracing organic growth. In this segment is 15% for the quarter for nine months. It is also 15%.
Integral analytics software group is having a great year and the pipeline for 'twenty four looks strong we believe.
He is getting better at selling and the software and the demand is increasing.
Our performance Engineering group has won several new jobs that will be announced over the coming weeks.
This service is being cross sold very effectively throughout the organization.
Our utility programs are doing.
Or I should say are going well.
We have successfully restructured the California IOU programs all Recompete. This year, we are successfully won.
We've also gained new utilities in the Midwest and northeast.
Our engineering work in the northeast and New York City housing authority in nature and are your partners already toward New York Power Authority and the dormitory authority of the state of New York are doing well and growing.
Summarizing our performance to date and will that organization has recovered is functioning very well.
Look through our E three group.
Lena during this energy transition.
Also as you say looking to <unk> to add capabilities in 2024.
And quality demands for our services remains healthy led by the energy transition and demand from municipalities given the strength in our end markets are impressive year to date performance and our expectation for the momentum to continue.
We are raising our 2023 guidance.
Our strong financial position further amplified by the successful refinancing of our credit facility puts us in a position to actively pursue strategic acquisition.
Aligned with our business objectives.
I am confident.
Executing our strategy, we are positioning the company to deliver strong long term shareholder returns.
I want to thank our employees customers and stockholders for your support I will now turn the call over to Ken.
Provide additional details on our financial results and our updated guidance.
Thanks, Tom and good afternoon, everyone Q3 reflects strong earnings performance and strengthening financial condition for the nine months year to date, we generated $28 2 million and adjusted EBITDA and $24 1 million in cash flow from operations.
$28 2 million of adjusted EBITDA as a company record for the first nine months of the year.
$40 million in trailing 12 months adjusted EBITDA was also a record.
Continued strong execution drove the improvement in operating results, providing the means to further delever the business and bring our leverage ratio to two two times adjusted EBITDA as of the end of the quarter.
This helped us complete the refinancing of our credit facilities during the quarter, thereby putting us in a position to continue the pursuit of strategic acquisition opportunities.
We recently closed on a small addition to our municipal engineering segment that broadens our service offering and were currently seeking additional acquisition opportunities for.
For Q3 gross revenue was up nine 3% over Q3 of 2022 to a record $132 7 million net.
Net revenue was up 10, 8% to a record $65 3 million fueled by our strong backlog and continuing demand across the broad range of our services we.
We saw an 8% revenue growth in our energy segment gross revenue, while the engineering and consulting segment grew revenues more than 10% over the prior year for the fifth consecutive quarter.
Q3, gross profit was 16% higher year over year gross margin improved to 32, 7% in Q3 2023 versus 39% a year ago.
<unk> restructured, California, IOU contracts and improved productivity throughout the business.
Despite the strong growth in revenues Q3, G&A expenses were up only three 4% versus the same period, a year ago with lower stock compensation and depreciation and interest accretion on earn out liabilities, partially offsetting higher employee compensation.
Interest expense on the other and increased 7% to $2 4 million in 2023 from $1 4 million a year ago due to the higher interest rates.
Our income tax rate was 31% in the third quarter compared to a tax benefit of 105% for the third quarter of 2022.
So for the third quarter net income was $1 6 million or <unk> 11 per diluted share versus net income of $76000 or a penny per diluted share a year ago.
Adjusted EBITDA in Q3 of this year was $10 1 million up 27% over the $8 million in Q3 of 2022.
Adjusted earnings per share in Q3 of this year with 37.
Versus 42 cents in Q3, a year ago, mainly reflecting the difference in tax rates.
In terms of the nine months ended September 2023 versus the nine months of September 2022, gross revenue was up 12, 2% to $354 4 million in net revenue was up 16, 6% to $188 9 million with solid.
Growth across all our service lines and increasing momentum supported by a strong backlog.
Gross profit increased 25% as gross margin improved to 35, 4% in 2023 compared to 31, 8% a year ago, driven by higher software licensing and improved performance on our utility contracts.
We realized significant operating leverage in the period as G&A expenses increased only two 6% versus the same period a year ago, while the net revenues had grown 16, one 6%.
Higher employee incentive compensation consistent with the improvement in income from operations was partially offset by lower stock based compensation and lower interest accretion on earn out liabilities, which have now all been satisfied.
Interest expense increased by $3 9 million to $7 1 million for the nine months ended Sept.
September 2023, compared to $3 2 million in the same period, a year ago due to the higher interest rates and year to date income tax expense was $1 7 million or an effective rate of 37% compared to an income tax benefit of $5 6 million on the loss in <unk>.
2022.
Relatively high effective tax rate reflects the impact of certain reduced deductions in prior year returns, resulting from the lower stock price on stock compensation, which vested in the first quarter of this year.
For all of 2023, we now expect an effective tax rate of approximately 29%.
Year to date net income was $2 9 million.
Or 21 cents per diluted share compared to a loss of 8.1.
<unk> or <unk> <unk> per share in 2020 to improve.
Improved results throughout the company enables a significant turnaround.
Our balance sheet also reflects the benefits of our improved earnings and the higher cash flows at the end of September 2023, our leverage ratio improved significantly to two two times trailing 12 month, adjusted EBITDA and net debt was $86 5 million.
During the quarter, we paid off the $5 million outstanding under our line of credit, while maintaining a healthy $12 $9 million cash balance at the end of the quarter.
On September 29, we completed the refinancing of our bank credit facilities and entered into a new three year credit agreement with a syndicate of five banks jointly led by E Mail at JP Morgan, we used the proceeds from the credit agreement's term loan to repay and terminate the prior credit agreement, which.
We're scheduled to mature on June 26, 2024.
As well as to fund the fees and expenses associated with refinance.
The new credit facilities will provide working capital finance capital expenditures and acquisitions and serve other general corporate purposes to continue to grow the company.
As of the end of September and currently there were no outstanding borrowings under our $50 million revolving credit facility.
But the performance delivered year to date.
Expectations for a strong fourth quarter, we're raising our 2023 financial guidance.
For all of 2023, we now expect net revenue growth of 10% to 12%, implying net revenue in the range of 250 to 255 now.
Adjusted EBITDA is now expected to be in the range of 40% to $42 million, implying a fourth quarter EBITDA of $12 million to $14 million.
And adjusted diluted earnings per share in the range of $1 33 to $1 38.
We are raising our estimated full year tax rate of 29% and assuming a diluted share count of $13 7 million.
Expenditures are expected to be in the range of $10 million to $12 million.
Operator, we're now prepared to answer your questions.
At this time, we will conduct a question and answer session.
If you would like to ask a question. Please press Star then the number one on your telephone keypad now and you will be placed in the queue in the order received.
Once again to ask a question. Please press Star then the number one on your telephone keypad now.
Your first question comes from Craig Irwin with Roth and Kim Your line is open.
Thank you gentlemen.
Another really strong quarter here.
Great.
This is accrual youre breaking up a little bit could you integrate closer I'm sorry lower.
Hey, I wanted to say congratulations on another another really strong quarter here to start is that clear you came through loud and clear you can say it again in July.
Great job How's that.
Yes.
Yeah, So Tom I really appreciate it thank you.
Okay.
The interest rate question head on right in your in your prepared remarks, a lot of chatter out there with investors.
People are looking at the solar the solar industry and the wind industry and knowing that there's a lot of projects that are kind of being pulled off the table because interest rates have gone too high for those to be profitable to finance.
But you're beating numbers raising guidance obviously.
Your customer base out there is still doing quite a lot of consulting activity.
Looking at renewables and other projects that they want to develop.
Can you can you maybe talk a little bit more.
The character of these projects are they likely to just maybe take one or two skips less of a you know a diff.
<unk> flavor of ice cream then.
And then solar or something.
Are we looking at maybe a slightly smaller projects.
How do you see that this interest rate environment impacting the broader opportunity set that will dance.
<unk> its customers and addressing.
Okay. That's three questions in there Mike is going to take a couple I just wanted to start off with.
We would like to differentiate ourselves.
From the solar industry that is so high the interest rates do you think we've done that and what we said.
I think I think it's very clear yes.
That's very clear.
Your next question was.
What solar projects are we done.
I think was your next question.
And Scott.
Scott earnings rate that will address it and in one way yes.
Alright, well, we do very few if there's a customer.
Like a hospital or something that lot solar, but we will do it solar is not what we're doing.
We're helping them decide what they should do.
We're not in that business, Mike do you want to a few projects, where we are doing solar or battery. It's so small.
Additions to bigger projects that focus on de carbonization or energy efficiency.
Yes.
I don't know what Youre looking for with that question, Craig, but I want to make sure we really make it clear.
We're consulting helping people decide what they should do and when.
That big Hospital chain I talked to they want to do a project in the lesser their IRR is 11%. So we are scraping through their 1200 facilities, China, showing what they can do with incentives and other things that meet our internal rate of return.
That's the type of work we do we also do with utilities.
All of these commercial buildings and commercial customers small businesses. They are all getting incentives that are part of the special purpose tax where the money is already there in California. It's a 1 billion in New Jersey, It's a 1 billion in New York, It's almost $1 billion.
And so we're working off of money that's already there or does it require bank financing.
Separately interest rates and the third part of your question Craig Wise.
Okay.
Well, how do you how do you see this impacting the project sizes and project velocity that will Dan's addressing obviously it doesn't change the count of the number of total hospitals out there 1200 for one is pretty good but do you <unk>.
Do you imagine this shrinking the number of hospitals that would would be considering a proper analysis that building would do.
To review their options as far as energy efficiency and renewables.
Can't imagine that scenario, but maybe you can talk us through why.
They are not interest rates address whether or not they impact the total opportunity consulting for hospitals across the country.
I can't see it because they are highly driven by 2030 in 2015 decarbonization goals, they're actually looking for more help in my opinion.
To try to figure out how to get there.
With the financial Crunch, So we are.
We are not seeing any decline in their interests. We're just seeing more motivation on how they get there and that requires actually like already three broke a lot smarter people.
Because they know what's coming in the future that help. These these companies see it and then they say through all of the possibilities whether it would be.
<unk> et cetera, and the utilities.
So I don't see it shrinking that problem because we all have goals for me, Mike you guys seem to add to that no.
O&M, partially explains why our results are getting stronger and stronger.
As interest rates have gone up 5%.
There is no correlation the projects are.
Dropping off we're getting more difficult, we're actually accelerating right now.
Excellent that actually that answers what I was going to put up with my next question, a little bit, but maybe I'll ask in a slightly different way. So typically during periods of economic weakness.
You mentioned the financial Crunch Tom.
The cfo's different institutions take a look and say where can I save money now will dance energy efficiency patients exists because it delivers.
Verifiable savings to the customers.
So can you maybe talk about the tempo of activity.
Away even from some of these IRA or renewables related projects are you seeing sort of the counter cyclical impact that sort of economic weakness.
Interest rates are.
Higher interest rates and these other factors in the environment driving an elevated tempo of activity across your customer base.
Well, we've said before we were doing zero two.
Very few IRR type projects that might pick up in the future.
That slows down we don't know, we see money coming in through the Green Bank for financing.
Uh huh.
Okay.
I think.
This whole strategy that we've talked about here.
Caring for it as a.
Given our 2007 eight experience.
Most every part of what we do and will that now.
We went right to the recession, all of seven or eight or nine without a hit.
And.
We haven't seen one yet.
We have a little bit of a canary in a coal mine here with the engineering business.
Allergy thereof.
11 12, 13%.
There is a couple of explanations that we hypothesize or what's going on in this economy Wanda.
It's harder to get people.
So these municipalities versus <unk>.
Our using our people outsource it.
Yes about the debt.
We figure out outsourcing is cheaper than hiring.
Maybe with the way the retirement structures are in municipalities.
Finally figure out they can't afford to pay for what position towards great people.
The retirement, so we see.
Not seeing what we thought we would see.
And municipalities.
Actually increasing but we think it should be decreasing.
So.
I think we're bucking the trend the right way as Mike said.
The numbers show we are.
And I don't know if I completely got his question, Mike would you guys need to add to that.
We don't know whether higher interest rates are accelerating our business are not yet I don't think we have enough data that was exactly what your question was I think Craig.
But we are accelerating and they're our highest higher interest rates how about that.
Higher interest rates ever help anymore.
No.
David.
Saving energy would be Ed yeah.
But.
Okay great.
Never good for anyone.
Understood understood now you guys are definitely showing momentum. So then last question. If I may can you give us a quick update on integral analytics.
This is obviously, a real gem and we'll Dan and you know can be lumpy from time to time.
Is there anything in front of our commissions right now that you think is notable.
We should get an update on or is there anything you know.
Given this elevated level of activity for planning for renewables or are we likely to see some of these contracts.
Be awarded before the end before the end of the year.
Okay.
They have a great pipeline right now and it's going to carry over into 2024.
I'm not going to get into specifics because we're in the middle of specifics on a few of these and it is possible some would be executed and to announce before the end of 'twenty four 'twenty three rather we're also carrying a great pipeline into 2024 and these states are.
In places where distributed energy is a bigger proportion of generation.
Pressure in the utilities to modernize and adopt tools like IAA software. So theres strong demand that is increasing.
In new states that we have not worked before.
Excellent well. Thank you congratulations on a strong quarter I'll go ahead and hop back in the queue.
Yeah.
Once again to ask a question at this time. Please press Star then the number one on your telephone keypad.
Your next question comes from Richard Eisenberg Private Investor Your line is open.
Good afternoon.
Should we expect any sizable acquisitions in the fourth quarter or in the first quarter of next year. Thank you.
Well Richard I don't know, if we know that you're on the road with as you can say or you just wanted to ask the question.
I'm a private investor.
Okay.
Good morning.
We don't forecast acquisitions, and nonetheless, known as in guidance or in the raise I want to point that out.
We announced and when we close them, having said that we just got our credit facility renegotiated we're just starting.
To Reinitiate our acquisition process.
Possible, we could have acquisitions soon but we're just starting the re initiation process and.
It's more likely that it will be later in 2024, but not out of the question, but it's earlier.
Okay. Thank you very much congratulations on the good quarter.
Thank you for being an investor.
Okay.
At this time. It appears there are no further questions I would now like to turn the call back over to management for any closing remarks.
Well.
Thank you to all who are on the floor place.
Shareholders, possibly customers, it's great working with all of you.
I had a great year and things are improving here and rolled out and we hope to keep it going so.
Thank you very much.
Okay.
This concludes today's will did group third quarter 2023 financial results Conference call. Thank you for attending and have a wonderful rest of your day.
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